Can Taxes Be Elastic

Tax incidence can also be related to the price elasticity of supply and demand. When supply is more elastic than demand, the tax burden falls on the buyers. If demand is more elastic than supply, producers will bear the cost of the tax.

What do you mean by elasticity of a tax?

The degree to which the increase in the tax rate causes a change in the tax base is called the elasticity of taxes. The concept of elasticity is very old in economics. … Since the demand for these products remains more or less unchanged, increasing the tax rate leads to an increase in the tax revenue.

Who pays taxes on perfectly elastic?

When One Party Bears the Tax Burden If supply is perfectly elastic or demand is perfectly inelastic, consumers will bear the entire burden of a tax. Conversely, if demand is perfectly elastic or supply is perfectly inelastic, producers will bear the entire burden of a tax.